[WSJ] On Microsoft stock options. ==> The cost of grad school.

I Find Karma (adam@cs.caltech.edu)
Tue, 11 Aug 1998 05:15:57 -0700

Depressing thought (for me and Klassa) of the day: We graduated college
in 1990 with our bachelor's degrees in computer science, and we had two
options. Go to work or go to grad school. For those of you who don't
recall 1990, the U.S. was in a post-"Read my Lips" recessionary funk, so
grad school seemed like the right choice.

Fast forward to 1998. Klassa was smart and actually left grad school
with an MS in 1992 to get a job and start a family. I on the other hand
didn't know enough not to throw good money after bad, and have basically
spent the entirety of the 1990s in graduate school. And yet, if I had
just gone to Microsoft in 1990 to work on Windows 3...
> Someone who had received a grant of 1,500 stock options in 1990 and
> exercised them today would -- courtesy of six splits and a 3,400% rise
> in Microsoft's share price -- realize a gain of more than $5.5 million.

I've often wondered what it cost me to forget about life for my
20something slacker decade to pursue a PhD. Now I know. Five point
five million. Shucks, even if you don't care about money, is *anything*
worth giving up five point five million for?

T-minus-one-week until I go to Bill Gates' house for dinner.
T-minus-two-weeks before I have to surrender my badge and can no longer
get Microsoft software discounts at the company store (if anyone has any
more requests, tell me now.)

Full article follows...

> America 1998: High on Stock Options: At Microsoft, a War Smolders
> Between Haves and Have-Nots
> by Lee Gomes, The Wall Street Journal, 08/10/98
> You can tell a lot about the people at Microsoft Corp. by the color
> of their ID badges.
> Permanent workers at the software company sport blue badges; temporary
> workers, orange. The two colors can signify minor differences, such as
> whether someone is entitled to attend a campus-sponsored guest lecture.
> (Blues only, please.) But the badges also say a great deal about the
> bank accounts of the people who wear them, and their access to Microsoft
> options.
> When it comes to options, the difference between blue and orange is an
> economic chasm separating Haves, like Bonnie Olvera, from Have-Nots,
> like Mark Wiitala. The gap in wealth is a rich source of Microsoft
> gossip. It also is a central issue in a longstanding, closely watched
> lawsuit concerning other stock benefits, which temporary workers have
> filed against the company.
> Microsoft options windfalls have led to untold early retirements at the
> Redmond, Wash., company -- or at least taken the edge off difficult
> personal circumstances. Consider 44-year-old Ms. Olvera, who is unlucky
> enough to work one of the handful of graveyard shifts at the Microsoft
> campus. Her job is to help post information on Internet pages that are
> part of Microsoft's news joint venture with General Electric Co.'s NBC
> network. She goes to work at 11 p.m. and gets home around 8 a.m. -- too
> late to see much of her husband before he leaves for work, but just in
> time to look after her two-year-old and her five-year-old while trying
> to catch up on her sleep.
> Yet Ms. Olvera, who makes $45,000 a year, is upbeat about her work life.
> In the early 1980s, she received a passel of Microsoft stock options
> when she took a typesetting job at the then-young company. She won't
> disclose how many, but says it was enough to allow her not only to make
> a down payment on a home, but also to get a head start on retirement. "I
> feel very fortunate," she says.
> Mr. Wiitala, a 36-year-old married father of three, missed the options
> lottery. A programmer for Microsoft's multimedia reference products, Mr.
> Wiitala has had several chances over the years to go full-time. But
> because contract workers often receive a greater hourly salary than
> permanent employees do, Mr. Wiitala opted to remain a "temp," and
> ineligible for Microsoft benefits. That meant turning down stock options
> in favor of roughly 25% extra in take-home pay.
> Microsoft is "able to get people to work for those low salaries because
> they think they can make it up on the stock," he says. "In hindsight, I
> would have made a lot more money on the stock, but it was a gamble I
> wasn't willing at the time to take."
> Five thousand of the roughly 19,000 workers at the Microsoft campus are
> classified as "contingent" or "temporary" workers, like Mr. Wiitala.
> They are actually on the payrolls of a handful of high-tech employment
> agencies, who also provide their benefits. They are ineligible for
> Microsoft stock benefits, including options and the stock-purchase plan
> -- even though they may have worked at Microsoft for years.
> Thanks to Microsoft stock, one of the great performers in Wall Street
> history, the wealth available to the company's employees can be
> eye-popping. It's still common for Microsoft to offer even lower-level
> new hires options on as many as 1,000 or 1,500 shares. Someone who had
> received a grant of 1,500 stock options in 1990 and exercised them today
> would -- courtesy of six splits and a 3,400% rise in Microsoft's share
> price -- realize a gain of more than $5.5 million.
> The stock purchase plan, which is one of the issues in the lawsuit,
> isn't quite the bonanza that stock options are -- but it too can be
> lucrative: Permanent employees get a 15% discount on Microsoft shares.
> Microsoft says it is legitimate to hire contract workers, and uses them
> in carefully proscribed situations. But some of the workers say the
> company uses them everywhere and for everything -- that they have been,
> in effect, regular employees and should be entitled to regular benefits,
> including the stock-purchase plan. One possible outcome of the suit,
> filed in 1993 in state court and now pending in U.S. District Court in
> Seattle, is that the software giant would have to grant contract workers
> millions of dollars in stock-purchase benefits retroactively.
> Microsoft is touchy about descriptions of its work force as a two-tier
> entity, noting that many contract workers are like Mr. Wiitala --
> well-paid and free to look for jobs elsewhere. "It's like saying we are
> hiring migrant farm workers and trying to keep them down," a spokesman
> complains.
> But other contract workers at Microsoft say they never got the chance to
> go full-time in the first place. Marcus Courtney, a 27-year-old software
> tester at Microsoft, says that whenever he brings up the issue of going
> permanent, supervisors tell him, "We can't have those kinds of
> conversations."
> Mr. Courtney stands to benefit if the temporary workers win the legal
> fight. The highly-publicized and complicated case dates back to the late
> 1980s, when Microsoft first employed workers it dubbed "independent
> contractors." The Internal Revenue Service successfully challenged their
> status, and soon after the workers sued. The Seattle law firm Bendich,
> Stobaugh & Strong is handling the matter.
> While it once appeared Microsoft was coming out ahead, that may no
> longer be the case. The five-year old fight has gone all the way to the
> Supreme Court -- which earlier this year declined to hear a company
> appeal of an adverse ruling. A lower-court ruling last month was
> sufficiently ambiguous, said Marc D. Freedman, a Ramsey, N.J., attorney
> specializing in contract-worker labor law, that a Microsoft victory
> isn't a sure thing.
> Which raises the question: If the temp workers win their suit, what kind
> of retroactive stock-purchase rights should they get? Given the
> performance of Microsoft's stock, the issue is a bit like deciding how
> much someone should be allowed to bet on a lottery when the winning
> numbers are already known.
> Already, Microsoft is maneuvering to keep any retroactive stock-purchase
> award on the low side. A company spokesman, for example, notes that
> fewer than a third of the full-time employees from the late 1980s
> participated in the stock-purchase plan -- suggesting that while they
> may be skilled at making PC software, Microsoft workers aren't
> especially gifted stock-pickers.


The way to make a small fortune in the stock market is to start with a
large fortune.